Passive-loss rules

Passive activities are investments in which you do not materially participate. Losses from such investments can be used only to offset income from similarly passive investments. Passive losses generally can’t be deducted against other kinds of income, such as salary or income from interest, dividends or capital gains. Generally, all real estate and limited-partnership investments are considered passive activities, but there is an exception for real estate professionals and a limited exception for rental real estate in which non-professionals actively participate. Losses you can’t use because you have no passive income to offset can be carried over to future years.